Section 168 — Advance pricing agreement. Successor to s.92CC of the 1961 Act.
Section 168 is in Chapter X — Special Provisions Relating to Avoidance of Tax, which runs from section 161 to section 177.
Sub-section (1) empowers the Board, with the approval of the Central Government, to enter into an advance pricing agreement with any person determining either the arm's length price, or the manner of determining it, for an international transaction to be entered into by that person, or the income referred to in section 9(2), or the manner of determining it, that is reasonably attributable to operations carried out in India by or on behalf of that person, being a non-resident. Sub-section (2) allows the manner of determination to include the methods referred to in section 165(1) or the methods provided by rules made under the Act, with such adjustments or variations as may be necessary or expedient.
Sub-section (3) gives the agreement primacy: irrespective of section 165 or 166 or the rule-based methods, the arm's length price of the covered international transaction, or the income referred to in sub-section (1)(b), is determined as per the agreement. Sub-section (4) limits validity to a period not exceeding five consecutive tax years as specified in the agreement. Sub-section (5) makes the agreement binding on the person in whose case and for the transaction for which it was entered, and on the Principal Commissioner or Commissioner and the income-tax authorities subordinate to him for that person and that transaction. Sub-section (6) removes that binding force if there is a change in law or facts having bearing on the agreement.
Sub-section (7) allows the Board, with the approval of the Central Government, to declare an agreement void ab initio by order, if it finds the agreement was obtained by fraud or misrepresentation of facts. Sub-section (8) states the consequences: the Act applies as if the agreement had never been entered into, and the period from the date of the agreement to the date of the sub-section (7) order is excluded in computing any period of limitation under the Act, with any remaining limitation of less than sixty days extended to sixty days.
Sub-section (9) is the rollback: subject to prescribed conditions, procedure and manner, the agreement may also determine the arm's length price or the section 9(2) income, or the manner of determining either, for any period not exceeding four tax years preceding the first of the years covered by sub-section (4). Sub-section (10) deems proceedings to be pending in the applicant's case until the agreement is entered into or the proceedings are closed as prescribed. Sub-section (11) lets the Board prescribe a scheme for the manner, form, procedure and other matters.
Transfer pricing disputes are slow, evidence-heavy and repeat every year on the same facts, and a non-resident with Indian operations faces the same uncertainty about how much profit is attributable here. The section lets the price or the attribution be settled in advance and made binding on both sides for a fixed run of years, with a rollback to clean up the immediately preceding years. The void ab initio power and the limitation extension in sub-section (8) are the safeguard: certainty is offered only to a person who obtained the agreement honestly.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Maximum validity of an advance pricing agreement | Not exceeding five consecutive tax years | The actual period is that specified in the agreement; five years is a ceiling, not a fixed term | Sub-section (4) |
| Rollback period | Not exceeding four tax years | Preceding the first of the tax years referred to in sub-section (4), and subject to such conditions, procedure and manner as may be prescribed | Sub-section (9) |
| Minimum limitation left after the void ab initio exclusion | Sixty days | Where, after excluding the period from the date of the agreement to the date of the sub-section (7) order, the remaining period of limitation is less than sixty days, it is extended to sixty days | Sub-section (8)(b) |
Five years and four years are both ceilings. The agreement is valid for "such period not exceeding five consecutive tax years as specified in the agreement", so the operative term is whatever the agreement says, and the rollback under sub-section (9) is for a period "not exceeding four tax years" and is itself subject to conditions, procedure and manner still to be prescribed. The binding force runs both ways but is narrow: it binds the person only for the transaction covered, and it binds the Principal Commissioner or Commissioner and his subordinates only for that person and that transaction — and it lapses under sub-section (6) on a change in law or facts having bearing on it, which is a lower trigger than fraud. Sub-section (3) overrides sections 165 and 166 and the prescribed methods, so once an agreement exists the ordinary machinery does not decide the price. If the agreement is annulled under sub-section (7), the Act applies as though it never existed and the Department does not lose time doing so, because the whole period from agreement to annulment order is excluded from every limitation period under the Act, with a sixty-day floor. Sub-section (10) matters while an application is pending: proceedings are deemed pending in the applicant's case for the purposes of the Act until the agreement is made or the proceedings are closed as prescribed.
A company enters into an advance pricing agreement fixing the arm's length price for its international transactions with its overseas group for four consecutive tax years, and, under sub-section (9), the same agreement covers the two tax years immediately preceding the first of those years. Under sub-section (3) the price for those transactions is the agreed price, and the Assessing Officer cannot apply a different method under section 165 or 166 for them. If the Board later finds the agreement was obtained by misrepresentation of facts and declares it void ab initio, sub-section (8) puts the company back where it would have been with no agreement, and the years are not saved by limitation because the entire period from the agreement to the annulment order is excluded, with at least sixty days left to act.
You meet this through an application to the Board for an advance pricing agreement in the prescribed form and scheme, and thereafter in the transfer pricing computation and the annual compliance the agreement's terms impose. Where an agreement exists, it is what a transfer pricing proceeding for the covered transaction turns on; where the Board annuls one, it comes in the form of an order under sub-section (7).
The agreement referred to in sub-section (1) shall be valid for such period not exceeding five consecutive tax years as specified in the agreement.
The agreement referred to in sub-section (1) shall not be binding if there is a change in law or facts having bearing on the agreement so entered.
The Board may, with the approval of the Central Government, by an order, declare an agreement to be void ab initio, if it finds that the agreement has been obtained by the person by fraud or misrepresentation of facts.
during any period not exceeding four tax years preceding the first of the tax years referred to in sub-section (4)
See the full 1961 to 2025 concordance.
All of them are in the Rules 2026 index.
See the circulars index.
See the notifications index.